Treasuries advance on safety demand as consumer confidence drops

Treasuries rose, trimming a third monthly decline, as an industry report showed consumer confidence declined this month, boosting demand for the safest securities.

Benchmark 10-year notes advanced for the third time in four days before a report tomorrow forecast to show gross-domestic- product growth slowed last quarter. The Federal Reserve is meeting today and tomorrow to consider whether to start reducing monetary stimulus through its program of purchasing $85 billion of mortgage and Treasury securities a month.

“It’s really data dependent,” said Thomas di Galoma, head of U.S. rates sales at ED&F Man Capital Markets in New York. “Some people are backing off” from optimistic reads on growth in GDP and jobs creation.

The benchmark U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 2.57% at 10:02 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75% note maturing in May 2023 rose 1/4, or $2.50 per $1,000 face amount, to 92 29/32. The yield has climbed eight basis points this month.

Treasuries have lost 0.2% this month and 2.6% in 2013, according to Bloomberg World Bond Indexes. German bonds returned 0.5% for the month while declining 1.3% for the year. U.K. gilts have risen 0.7% in July, with a 2.8% loss since the end of 2012, the indexes show.

Market Rates

Treasury trading volume at ICAP Plc, the largest inter- dealer broker of U.S. government debt, was $194.9 billion yesterday, below this month’s average of $204.7 billion.

The Conference Board’s index of U.S. consumer confidence decreased to 80.3 in July from 82.1 a month earlier, data from the New York-based private research group showed today. The median projection in a Bloomberg survey called for a reading of 81.3. Estimates of the 75 economists ranged from 77 to 85.5.

The Commerce Department will say tomorrow that U.S. economic output slowed to an annualized pace of 1% in the period from April to June from a 1.8% pace the previous three months, according to the median forecast of 83 economists in a Bloomberg News survey.

The central bank will purchase as much as $1.75 billion of Treasuries maturing from February 2036 to May 2043 today, according to the website of the Fed Bank of New York.

“It’s a modest in-range bid ahead of tomorrow’s more relevant fundamental developments,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

The surge in corporate deal flow, which helped push yields higher yesterday, has been absent from the market today with the Fed rate announcement and GDP data coming tomorrow, Lyngen said.

Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index rose to 83.18 basis points yesterday, up from 72.62 on July 22, the least since May 24. The gauge rose to 117.89 on July 5, the highest since December 2010.